If you recently lost your job and feel the financial strain, use this advice to find your footing.
A job loss, whether sudden or anticipated, can be traumatic. Many people's self-esteem and careers are intertwined. When they lose their jobs, they may question their self-worth and their ability to perform in the future.
Naturally, there's also a significant financial strain. Even if you have a robust emergency fund, you may feel overwhelmed with worry about how you'll support yourself, your family and pay your bills.
When you're going through a major life setback, it helps to have guidance in the form of clear steps. Read on for advice on 7 steps you can take, one at a time, to regain solid financial footing.
- Assess your financial situation.
- Create a budget and cut expenses.
- Explore emergency assistance programs.
- Consider freelancing and gig economy opportunities.
- Identify marketable skills.
- Explore loan and credit options.
- Seek professional financial advice.
1. Assess your financial situation.
It's always helpful to take time out to assess your situation before making any decisions about how to move forward. This starts with these actions:
Decide how to collect your final pay.
Some organizations provide a severance package to employees who've been laid off. If you have a choice on taking a lump sum or stream of payments, weigh the pros and cons of each.
A series of payouts might prolong benefits like health care and life insurance and make it easier to budget for the next few months. But if your employer is having financial problems and possibly facing bankruptcy or closure, you may be safer taking the lump sum.
Each decision also carries unique tax consequences. Consult an advisor to understand how taxes could impact your bottom line.
Calculate your savings and expenses.
Take inventory of your financial assets and liabilities. In other words, jot down your savings accounts, CDs and retirement accounts, as well as your total credit card debt, mortgage and car payments, medical expenses and monthly bills.
This matters because as you plan to use your assets to bridge the gap until you find employment, it's advisable to start with easily accessible assets, such as savings accounts. Unless you have to, you don't want to tap into retirement accounts that could charge a penalty or have a tax burden.
Your employer will probably ask you what you want to do with your 401(k) or other employer retirement plan. Avoid the temptation to cash out when you leave. In addition to hindering your saving for retirement journey, you'll likely face income taxes or penalties. Only crack open your nest egg as a last resort.
Determine unemployment benefits eligibility.
If you've recently lost a job, you may qualify for unemployment benefits. Take time to file for unemployment.
Programs vary by state, so check with your state's labor department for details. See note 1 Questions you might ask include: How long will your benefits last? What might jeopardize the benefits? It's important to have all the information up front so you can use these benefits wisely.
2. Create a budget and cut expenses.
During this employment gap, your budget will change. If you don't already have a budget, you can make one now with the help of our free online budgeting tool.
It's important to update your budget with your new income, which may consist of unemployment benefits, severance pay or a side gig. Take the following steps to maximize how long your assets will provide for your needs.
Prioritize essential expenses.
Once you've updated your income, take a look at your expenses to see what you can cut. The goal is to preserve your cash while you're out of work by making some lifestyle changes. The following ideas are just a starting point:
- Put off big-ticket purchases.
- Cut extra or unnecessary meals out, entertainment and streaming services.
- Carpool or explore public transportation options to reduce transportation costs.
- Adjust your thermostat to reduce utility bills.
Check out other opportunities you may have to reduce expenses with our article, How to create a budget: Lessons from being broke.
Some of your expenses, such as health care, are essential. For a defined period of time after an employee's departure, some companies and the military continue to provide coverage. If not, consider private health care coverage as an alternative since medical care can be costly.
If you're leaving the military, health care in the civilian world is a bit different from what you've experienced under TRICARE. Learn how to get health insurance when leaving the military, and familiarize yourself with out-of-pocket medical costs, as that might be new to you.
Avoid cleaning your financial slate.
You may be tempted to use your severance or savings to pay off debt but making only the minimum payment may be a better option.
The idea here is that you need to use your assets to provide for your needs while doing as little damage to your credit as possible. Just remember: This is a short-term strategy. It's effective temporarily as you are searching for a new job because it keeps you from defaulting on your credit and preserves your assets to provide for your needs.
However, making only the minimum payment on your credit card will cost you in the long run. Learn why in our article, The high cost of credit card minimum payments.
3. Explore emergency assistance programs.
Beyond unemployment benefits and the potential severance from your company, you may be able to access aid from local community resources.
If you're having trouble putting food on the table or paying certain essential bills, like utilities, explore options in your area. Think about local churches or food pantries.
If you don't know where to go, your state may have a website or hotline to help you find social services in the area. In Texas, we have 2-1-1 Texas. See note 1 Here, you can find information on services ranging from food pantries to utility bill assistance. Check for something similar in your area.
4. Consider freelancing and gig economy opportunities.
While you're searching for your next full-time or permanent job, consider what you can do in the meantime to earn income. The more money you have coming in, the longer your savings can last, as long as you don't increase expenses.
But as you consider income sources, also consider how they might impact your unemployment benefits. In Texas, you may earn up to 25% of your weekly benefit amount before your benefits are reduced. Your state probably has different rules, so do your research before you accept a part-time gig.
Once you know the rules, read on for ideas on how to make money in the short-term.
5. Identify marketable skills.
What are your skills? How do you enjoy spending your time? Think broadly and consider the skills you brought to your previous job, as well as your hobbies.
For example, you may be a software engineer, but you love landscaping, and your immaculate yard and flower bed are proof of those skills. While you look for work as a software engineer, you may be able to find part-time work in the landscaping business.
Look into rideshare and delivery services.
These jobs are popular, but before you sign up, understand the insurance requirements. Know when you're covered by your personal auto policy, when you may be covered by your rideshare company and if there are any gaps.
Ask yourself if you can go on military orders.
If you're a member of the Reserves or National Guard and just lost your job, now may be the time to take a set of full-time orders, if offered.
This could be something you thought about in the past but put off as you prioritized your civilian job. Consider whether saying yes now could provide income as well as an opportunity to further your military career.
6. Explore loan and credit options.
If you have debt, you'll need to continue paying it down—at least the minimum payment—to avoid default.
As you explore loan and credit options, keep in mind that any loan you get will have to be paid back. That can potentially put you in a worse financial situation. Make sure any decision you make now is one that ultimately improves your financial standing.
Research personal loans.
If you can take action to reduce the interest rate you pay for that debt, it can help your money go further. A personal loan could be one way to accomplish this. For more information, check out this article, Should I use a personal loan to pay off debt?
Understand credit card and balance transfer options.
Let's say you have a credit card balance at 19% and you can lower the interest rate through a balance transfer. Learn more about a balance transfer to see if it could help you.
7. Seek professional financial advice.
Chances are, you still have questions on how to use your finances during this time. If that's the case, seek professional advice. A financial advisor or credit counselor can help you think through the next course of action.
And once you get a new job, remember that you'll want to take steps to put your financial life back together. Check out the last section of this article for tips on how to recover after this financial setback.
Even if you don't need help on a day-to-day basis, consider making an appointment a with a qualified financial advisor to determine how this unemployment bump in the road has affected your long-term financial plan.
It may sound cliché, but many people who experience a setback in their personal or financial lives often use it as an opportunity to make course changes that impact their lives for the better. It all starts with taking time to assess where you are now and where you want to go.
Get started assessing your situation today.
Let us help you create a new budget that considers your adjusted household income and expenses.